Third Quarter Consolidated Financial Performance
Third quarter costs of sales, buying and occupancy, was 65.9% of net sales versus 63.1% last week. This represents a 280 basis point siration of gross margin due to increased mark downs and occupancy deleverage.
Selling, general, and administrative expenses in the quarter were $198 million at 35.6% of net sales, versus $189 million and 33.2% of net sales last year.
This results reflects negative leverage from the comp decline, as well as the executive compensation and consulting fees.
The company had a third quarter with a consolidated net loss of $9.4 million and 18 cents loss per share. The company’s performance was slightly better than the recent expectations due to tight expense controls across both brands and approved gross margins at the J. Jill brand. The results were significantly below third quarter plan due principally to two factors: a sales shortfall and the resulting effect of much higher than planned markdowns.
Interest expense for the quarter was $8.8 million versus $8 million last year.
- This increase is due primarily to the inclusion of approximately $700,000 of additional interest charges associated with required implementation in the first quarter of 2007 of Fin-48 (sic) (inaudible) in income taxes.
- Income taxes for the quarter reflect a 45.2% effective tax rate. This rate is impacted by required Fin-48 adjustments.
- Weighted average shares outstanding for the quarter were approximately 53 million.
Within the third quarter the company had full accounts receivable of $225 million versus $229 million last year, comprised entirely of Talbots’ charged receivables.
- Talbots charged penetration remains stable at 45% of sales and bad debts are running at very low rates.
- Total consolidated merchandised inventories at the end of the quarter were $380 million, up 3% to last year’s $368 million.
- At year end total consolidated inventories will be down greater than 10% compared to last year. The company is comfortable at this lower inventory level position as well as Talbots enter the 2008 spring season.
During the fourth quarter, on a per-square-foot basis, inventory for Talbots'' brand women’s apparel stores will be down high-single digits compared to last year and J. Jill brand will be flat or slightly up on average per square foot.
On a consolidated basis the company spent a total of $65 million year to date.
- The consolidated 2007 capital spending plan exceeds $3 million.
- During the period the company paid a quarterly cash dividend of 13 cents per share.
The company reconfirmed its previously announced outlook for the fourth quarter to be a loss per share in the range of 5 to 10 cents.
This includes 6 cents per share of acquisition related and financing costs, and 7 cents per share of expenses related to executive compensation and professional consulting fees. This result compares to break even net even per share in the fourth quarter last year and included acquisition related financing costs were approximately 15 cents per share.
The company’s fourth quarter expectations continues to be in the negative mid-single-digit range with Talbots down mid-single digits and J. Jill flat to slightly up.
What the company achieves in this fourth quarter plan are fall season earnings per share in a six-month period ending February 2nd, 2008, would be in the range of a negative 23 cents to a negative 28 cents per share, including approximately 14 cents in acquisition related and financing costs, and 13 cents per share in expenses related to executive compensation and professional consulting fees.
From a four-year perspective, achieving the fourth quarter plan will yield a loss per share in the range of 38 to 43 cents for the combined companies, including approximately 37 cents per share and acquisition related financing costs, and 14 cents per share of expenses related to executive compensation and professional consulting fees. This result compares to a net income of $31.6 million or 59 cents per share in fiscal 2006 and included acquisition related financing costs of approximately 46 cents per share.
Over the Thanksgiving holiday weekend the company saw a marked increase in transactions of the Talbots brand and, as a result of the more aggressive customer contact event, it resulted in solid, positive comps.
For the J. Jill brand the performance was softer.
The company has a major promotional event taking place this week, specifically a friends and family event that should drive increased customer demand. On a total company basis, month-to-date comp trends are as expected.
Key questions and answers from the third quarter fiscal 2007 earnings conference call conducted by Talbots, Inc. (TLB) on November 27, 2007.
